Property Tax Appeals – The Reality

With the current credit crisis and softening economy, property values have dropped significantly across all states and with all property types. In turn, owners are lining up to conduct their own property tax appeals to get a reduction in their real estate taxes. At the same time cities are fighting hard to keep their tax base – the result is shaping up to be an all out “dog fight”.On the commercial side, we are seeing a drop in value as capitalization rates continue to rise and as the credit crisis lingers. Longer amortization schedules and “built in” appreciation models within commercial loans have had an almost artificial boast in property values. Now as these commercial loans are gone, this artificial increased value is gone.For owners, reducing property taxes has an immediate impact to the owner’s bottom line. All property tax savings go right to the NOI (Which in a way, actually increases the property’s value). The savings can be huge and once the new assessed value is established, the savings are ongoing, year after year. In short, it is well worth most owners time to fight for this, especially those that have purchased their property in the last 5 years or less.Property Tax AppealThere’s a procedure to getting for any property tax appeal and remember your city, does not want to lessen its tax base (they have those pensions and long vacations to protect). There is a lot that goes into doing it right, but perhaps the biggest issue, that most property owners are shocked to learn is how much control the city has in picking the COMPS (comparable recent sales). Your city will only want to use comps from transaction that happened under normal, non distressed conditions. They often refer to this as “Fair Market Value without Undue Influences.”What this really boils down to is that your city will not want to use comps from foreclosed properties sales and or from other “distressed” sellers. They will want to use comps that support their estimates of value. Which of course support their point of view and their tax base. A major problem with this is that a lot of transactions these days occur from foreclosed properties…The owner considering a property tax appeal will have to know how to deal with this issue as well as others before they sit in front of their city to appeal. Your city will do everything in their power to protect their tax base. You will need to understand the process; otherwise you will just waste your time.